Policy on Taxation of Gifts, Prizes and Awards to Employees



Policy on Taxation of Gifts, Prizes and Awards to Employees,

as Referenced in SPG 501.12 - Awards, Gifts and Prizes

1. Cash gifts, prizes and awards, and gift certificates, including gift cards, gift vouchers, etc.

A. Cash gifts, prizes and awards to employees that are paid for by University funds constitute gross wages subject to federal and state income and FICA taxation. Note that an exception for FICA taxation applies to student-employees as noted in SPG 202.01.

B. Gift certificates, including gift cards, gift vouchers, etc., are considered the equivalent of cash unless they meet a narrowly tailored exception. To qualify for this exception, the certificate must meet the following criteria: (1) it must be $50 or less, (2) it must limit the purchase of items to one vendor, (3) it must not be transferable to another individual, and (4) it must not be redeemed for cash. Non-transferable requires either that the name of the recipient be included on the certificate or that the unit abides by a policy that requires the employee to use the certificate.

An example of a non-taxable gift certificate is a $30 gift card in the name of an employee to Gandy Dancer restaurant that is understood to be used and enjoyed by the employee and that includes no cash redemption feature.

On the other hand, a gift certificate that allows an employee to choose items from multiple vendors, such as Mastercard, Visa, or Amazon, or that will be readily transferred to other parties, or that can result in the receipt of cash in lieu of a purchased item, is deemed the equivalent of cash and is taxable income as wages to the employee. The rationale is that without appropriate restrictions on the use of the card, the employee has the same options as if it were cash.

The unit is responsible to ensure that, in the aggregate, the employee has not received gift certificates for the calendar year in excess of $50.

2. Non-cash gifts, prizes and awards (excluding gift certificates/cards)

A. Such tokens of appreciation given to employees are subject to taxation unless the items of recognition qualify as one of the following (subject to limitations):

• a bereavement gift,

• a ‘de minimis’ fringe benefit,

• a length of service award,

• a safety achievement award, or

• a traditional retirement gift.

B. Bereavement

Gifts that express sympathy for a recent death or major illness of an employee or an employee’s family member may qualify as a nontaxable benefit, provided; the value of the gift is not in excess of $400.

C. ‘De Minimis’ Fringe Benefit

The University may reward an employee’s noteworthy, work-related accomplishments by presenting an item of tangible personal property, such as, a plaque or a memento without tax consequences provided the value of the item, in addition to other gifts, prizes or awards presented throughout the year to the employee, is not in excess of $99. The rationale is that these items of recognition constitute ‘de minimis’ fringe benefits that are considered so small that accounting for them would be unreasonable or administratively impracticable. Examples of ‘de minimis’ items include occasional tickets to theater or sporting events.

For instance, a school may provide turkeys or hams as part of a holiday celebration to those employees who demonstrate excellence in the workplace. So long as the cost of this benefit in addition to other gifts, prizes or awards given to that employee during the year does not exceed $99, the benefit does not need to be reported to the Payroll department as wages subject to income taxation. However, items of recognition given on an annual basis that exceed $99 and that do not meet the exceptions provided below should be reported as taxable wages to the Payroll department.

D. Length of Service Award

A length of service award may qualify as a non-taxable benefit; provided,

1) the employee has at least five years of service with the university,

2) the employee has not received a length of service award within the last five years. (This award includes items of appreciation given to employees at the university service awards program as provided under SPG 201.54, however, items given as part of holiday recognition programs sponsored by schools, colleges and units are excluded.)

3) the awards are presented as part of a meaningful ceremony and should not be determined based on an employee’s classification, and

4) the cost of the awards cannot exceed $400. The excess amount is reported to the Payroll department.

For instance, a school may provide to an employee an award of a framed photograph of the Michigan Union or other historical site at a cost of $200 without reporting the benefit to the Payroll department as taxable wages, provided;

• the employee has worked at the university for at least five years, and

• the employee has not received any other length of service awards from the university, including the university service awards program, within any of the prior 4 years.

Should these awards exceed $400, the excess amount should be reported as taxable wages to the Payroll department accordingly.

E. Safety Achievement Award

Safety achievement awards that recognize an employee’s accomplishments for maintaining or promoting defined safety standards may qualify for exclusion from taxation; provided,

1) the award is limited annually to less than 10% of total eligible employees,

2) the award is not presented to managers, administrators, clerical and professional employees, and

3) the award is limited to $400 per employee per year.

For instance, each year the transportation department may give a plaque that costs $250 to a driver who demonstrates excellence in maintaining safety standards. Should these awards exceed $400, the excess amount should be reported as taxable wages to the Payroll department accordingly. Importantly, based on the nature and application of this award, the scope is generally limited to certain employees, such as drivers in Parking and Transportation Services or helicopter pilots employed by the health system.

F. Traditional Retirement Gifts (treated separately from achievement awards)

For instance, a school may give an employee a gold watch for retirement from the University up to $400 without tax implications. The limitations on achievement awards discussed above do not apply. Any amount paid in excess of $400 should be reported to the Payroll department.

Please contact Tax Compliance and Planning (a Division of Finance) for further guidance at 734-763-3282.

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